As senators prepare to advance a marijuana banking reform bill with a vote next week, a federal agency has released new data showing that a record-high number of banks and credit unions are now working with the cannabis industry.
The Financial Crimes Enforcement Network (FinCEN) has been tracking cannabis banking trends for the better part of the past decade, and its latest quarterly report shows a notable uptick over time in the number of financial institutions that are willing to service state-legal marijuana businesses despite federal prohibition.
A total of 812 banks and credit unions reported actively working with marijuana companies in the second quarter of the 2023 fiscal year—a record high since FinCEN first started tracking these numbers in 2014. It’s up from 807 in the first quarter and 773 in the prior quarter.
FinCEN compiles this data based on financial institutions filing requisite “Suspicious Activity Reports,” or SARs, for marijuana-related business (MRB) clients.
There are several possible factors that could help explain the increase in banks working with cannabis businesses, including the fact that more states like Connecticut and New York have launched adult-use marijuana programs since FinCEN’s last update.
Another possibility is that financial institutions might be increasingly comfortable taking on cannabis clients given that bipartisan congressional lawmakers are working to enact broader protections for marijuana banking under the Secure and Fair Enforcement (SAFE) Banking Act. The Senate Banking Committee has scheduled a vote on the cannabis legislation for next week.
FinCEN has taken a much more detailed approach to its cannabis banking reporting since last year, providing insights about the types of SARs it has received and from which states they come from. The agency’s spreadsheets now look back retroactively over a nine-year period dating back to the initial issuance of cannabis banking guidance in 2014 during the Obama administration.
State-by-state breakdowns of the data reveal wide disparities between the number of marijuana-related reports being filed by financial institutions in markets across the country.
For example, California led the pack with banks and credit unions filing 3,757 SARs in the quarter ending June 2023. Oklahoma, which has a medical cannabis system that’s allowed a massive proliferation of dispensaries, came in second with 2,531 SARs.
Colorado, the first state to enact adult-use legalization, had a relatively lower number, with 951 reports filed. Oregon had 436 SARs.
Then there are other outliers like Kansas, which has no regulated access to cannabis but where 282 SARs were filed. In Texas, with its restrictive low-THC medical cannabis program, there were 739 reports.
These numbers are not a reflection of the number of banks that work with the industry, or the number of cannabis businesses within a given state, as one bank could file multiple reports and some SARs are to note a termination of services. It is also the case that different financial institutions may have varying interpretations of FinCEN guidance on when they need to file reports about marijuana industry clients.
FinCEN first provided the financial sector with guidance in 2014 that’s meant to help banks navigate the cannabis space while the plant remains federally prohibited. But advocates, stakeholders and lawmakers across the aisle have made clear that more needs to be done to normalize the sector and provide banks with certain assurances.
There’s still significant reluctance within the banking sector when it comes to working with businesses that involve a Schedule I controlled substance, and that’s reflected in the relatively low number of depository institutions that actually follow the guidance and take on cannabis clients.
Past reports from FinCEN had noted that it stopped including hemp-only businesses in its quarterly reports since the crop was federally legalized under the 2018 Farm Bill, which could account for at least some of the drop depicted in earlier data, but that hemp explanation language hasn’t been included in the past several reports.
As of the end of June 2023, there were 496 banks and 177 credit unions reporting active marijuana clients, according to the federal agency. There were also 139 non-depository institutes that filed cannabis SARs.
Meanwhile, while the Senate Banking Committee is for a markup of the SAFE Banking Act at the end of September, Treasury Secretary Janet Yellen told lawmakers in March that regulators are also exploring options to address the unique financial issues related to the cannabis industry.
Last year, Yellen said that it’s “extremely frustrating” that Congress has so far been unable to pass legislation like the SAFE Banking Act and that Treasury is “supportive” of the proposal.